June 2014

1. June 2014 Andrew Freeley joins SMS as managing director Martin Wheatley has said it was “disappointing” about how some lenders have interpreted the Mortgage Market Review The Help to Buy scheme has left taxpayers at risk, the Public Accounts Committee has said

2. HML News Andrew Freeley has joined Specialist Mortgage Services (SMS) as managing director. HML has appointed Andrew Freeley as managing director of Specialist Mortgages Services (SMS), a HML subsidiary. Freeley has joined SMS at an exciting time for the company. SMS provides regulated mortgage advice in the post-Mortgage Market Review (MMR) world, legal title management, mortgage shortfall debt recovery and market-leading advanced analytics services. He brings with him 15 years of experience in the financial services sector, including head of strategy and planning for UKAR and strategy director for Skandia Investment Group. Freeley started his career as a management consultant for Ernst & Young, delivering major strategic change programmes for financial services clients. “We are very excited by the growth potential of SMS, which adds a new dynamic and suite of capabilities to HML’s business in both the UK and Ireland. Since the launch of the MMR, we have experienced a high volume of calls from customers who want mortgage advice, demonstrating the importance of regulated advice in the post-MMR world. SMS efficiently delivers this for our clients and ensures customers receive high-quality advice to help them achieve appropriate outcomes in a fair, transparent and well-governed manner. “Our market-leading advanced analytics capability supports HML’s service to clients and also provides expertise to a range of other clients requiring analytics to help drive customer strategies and collections effectiveness, an example of which is our focus on recovering mortgage shortfall debt. “With legal title management, SMS, coupled with HML’s expertise in mortgage servicing, has the capability to provide an end-to-end mortgage management solution for clients wishing to invest in mortgage portfolios. Over the coming months, SMS will play an increasingly important role in HML, delivering diversification and growth.” Andrew Jones, chief executive officer at HML, commented: “I am delighted to welcome Andrew as managing director of SMS. His wealth of experience in the financial services sector is a great asset and will enable us to further develop SMS, both in the UK and Ireland. There is certainly a lot for lenders and mortgage portfolio investors to consider at the moment, and HML together with SMS have the experience and track record of delivery to support clients and their customers through this period and beyond.”

3. HML News HML has joined the Intermediary Mortgage Lenders Association (IMLA). IMLA has recently appointed Paul Darwin, head of intermediary sales at Skipton Intermediaries, as its director. HML has become an Associate of IMLA due to the growing importance of intermediaries in the post-Mortgage Market Review (MMR) world. John Grimbaldeston, director of products and marketing at HML, said: “We are delighted to become an Associate of IMLA. In a post-MMR world, intermediaries are building on their previous professionalism to deliver an even more important service to customers and lenders, and HML wants to strengthen its relationship with and understanding of the broker sector. “According to the Council of Mortgage Lenders’ Paul Smee, new lending is expected to reach £195 billion in 2014. This reiterates the growing importance of intermediaries, and we look forward to developing closer relationships both through our existing clients and new clients. “We expect several new lenders to enter the market over the coming months, and HML is well placed to work with these through our compliant and integrated origination platform. Outsourcing new lending allows lenders to focus on delivering a consistent, efficient and quality customer service by reducing complexity and costs and increasing speed to market. These will prove to be key differentiators for lenders looking to attract new customers.” Mr Darwin said: “IMLA’s primary aim is to develop the UK intermediary lending market through strong and effective relationships with brokers, lenders, the regulator and industry-related bodies. Membership brings a wealth of experience of this market and IMLA therefore welcomes HML as an Associate. “I am sure HML and Skipton will both benefit from working collaboratively with IMLA to ensure growth, innovation and customer choice through an active mortgage market.”

4. HML News Ben Chambers, product development manager at HML, provides his thoughts on the recent Council of Mortgage Lenders’ (CML) interest-only conference. At HML, we’ve tried to stay away from the term “ticking time-bomb” when describing interest-only mortgages. We believed that while interest-only mortgages did present challenges to lenders and their customers, early contact could help overcome these and prevent the interest-only bomb from exploding. At the CML’s recent interest-only conference, it was clear the industry also wants to change the perception of these types of mortgages. The conference was titled ‘Interest only: still interesting?’ and it is evident that it is. A new CML survey has revealed that ALL those borrowers with interest-only mortgages due to mature by the end of 2020 have been contacted by their lender about their repayment plans, reinforcing the commitment of the industry to support these customers. The survey also noted that around 28 per cent of customers who have been contacted have responded. While this percentage is encouraging, I do believe a lot more work could be done to improve contact rates and active customer engagement. At HML, our average customer response rate is between 45 and 55 per cent - but as part of one contact campaign we saw this figure shoot up to 61 per cent. Why? The campaign consisted of a letter and three call attempts, and I firmly believe that telephone calls are an essential communication channel if lenders are to see success. The CML has said that a specific call to action for the customer results in the highest response rates. In addition, sending a letter before making a call helps reassure the customer that the call isn’t a scam, while segmenting those borrowers who need to be contacted first was also highlighted as potential good practice. Good practice for the fair treatment of customers I won’t go into detail about what constitutes good practice – our guide succinctly summarises what the Financial Conduct Authority expects of lenders. Of course, lenders should be flexible and develop innovative products and services to help customers with their repayment options, although around four out of five borrowers (84 per cent) who have responded already have a clear plan, the CML survey found. Continues over the page

5. HML News Continued The CML is clear on the part that customers also play. Paul Smee, director-general, said: "If you have an interest-only mortgage due to end before the end of 2020 and you have not yet responded, it is important to communicate with your lender, even if you know your plans are on course. If they are not, your lender will want to work with you to help minimise any difficulties.” While we cannot make customers respond, we mustn’t stop trying. The cost of running a customer contact campaign is low compared to the expense of holding the capital associated with interest-only mortgages And another key point emerging from the CML and the wider industry is one we would wholeheartedly support - interest only is not a campaign to treated as ‘one and done’ - it is a lifetime journey for the industry to address and manage proactively and we need to focus on all customers with an interest-only mortgage – not just those with maturing loans on the near horizon. At HML, one campaign we ran for a client that linked customers to an online repayment calculator resulted in £10 million of balances being converted to full or part repayment. The benefit for both the customer and lender is clear. Finally, I’d like to leave you with this thought: Are you happy that your interest-only policy enables all accompanying processes to be fully documented and trained to your staff? Does it also satisfy your requirements for the management of end-of-term customers?

6. Industry Statistics Unemployment Rate The unemployment rate for February to April stood at 6.6%, representing 2.16 million people. Compared to the previous three months, the number of individuals in employment rose by 345,000. In addition, the number of unemployed people declined by 161,000. Gross mortgage lending Gross mortgage lending stood at £16.5 billion in May, the same on April and 12% on the same month in 2013, when lending reached £14.8 billion. CML chief economist Bob Pannell said: “Market indicators point to a slowdown in activity levels, in part associated with new mortgage rules, but it is unclear how lasting this will be. "Implementation of the new regulatory regime is likely to have disrupted the normal patterns of activity, creating statistical ‘fog’ around the published figures. As this lifts over the coming months, a clearer picture as to any lasting impact of the MMR rules on lending activity should emerge.” Home Repossessions Repossessions rose from 6,100 to 6,400 from Q4 2013 to Q1 2014, the CML has revealed. However, this represents a 20% decline on the same quarter in 2013. Around 1.7% of homeowners had arrears of at least three months’ mortgage payments or more. Consumer Prices Index The CPI decreased by 0.3% on April to 1.5% in May. The largest contribution to the CPI’s fall came from a decrease in transport costs, particularly air fares. The largest offsetting upward effects came from motor fuels, and recreation and culture. BoE Base Rate The Bank of England kept the base rate at 0.5%, as well as the stock of asset purchases at £375 billion. Halifax House Price Index The average price of a home increased by 3.9% between April and May to reach £184,464. This represents an annual increase of 8.7% from May 2013. Stephen Noakes, mortgages director at Halifax, said: “On an annual basis housing demand is still strong and continues to be supported by a strengthening economic recovery. Consumer confidence is being boosted by a rapidly improving labour market and low interest rates, although growth in average earnings still remains weak. "However, there are signs of a revival in housebuilding which should bring supply and demand into better balance and curb upwards pressure on prices over the medium and longer term." Home sales stood at 103,690 in April, a third higher than the same month in 2013.

7. Industry Statistics MAY ‘14 1.5% JUNE ‘14 0.5% FEB-APRIL ‘14 6.6% MAY ’14 Up 3.9% on APR Average price £184,464 MAY ‘14 Same on APR £16.5 billion JAN-MARCH ‘14 6,400 MARCH ‘14 1.6% APRIL ‘14 0.5% DEC-FEB ’13/’14 6.9% MARCH ‘14 Down 1.1% on FEB Average price £178,249 MARCH ‘14 Up 4% on FEB £15.4 billion JULY-SEP ‘13 7,200 APRIL ‘14 1.8% MAY ‘14 0.5% JAN-MARCH ‘14 6.8% APRIL ‘14 Down 0.2% on MAR Average price £177,648 APRIL ‘14 Up 8% on MAR £16.6 billion OCT-DEC‘13 6,100 Consumer Prices Index BoE Base Rate Unemployment Rate (ONS) Halifax House Price Index Gross Mortgage Lending (CML) Home Repossessions (CML) *Date reflects what the statistic was during that period, rather than when the statistic was published ** January figure has since been revised upwards to £16.1 billion

8. Top News Stories • The International Monetary Fund (IMF) has urged the world to take action to prevent another housing crash.The IMF noted that the housing sector needs to become more stable, and that policymakers should take early action in order to moderate housing booms. • IMF deputy managing director Min Zhu said: “The era of benign neglect of housing booms is over.” • He added: “Of all these potential indicators of the risk of a boom-bust cycle, IMF research suggests it is particularly important to monitor credit growth. We find that there is a distinguishing feature of real estate booms that go ‘bad’: this feature is the coincidence between the housing boom and the rapid increase in leverage and exposure of households and financial intermediaries.” • The Help to Buy scheme has left taxpayers at risk. • This is according to the Public Accounts Committee, which said £10 billion has been spent on Help to Buy. • Chair of the committee The Rt Hon Margaret Hodge MPsaid: “The government has yet to demonstrate that the Help to Buy scheme provides value for money. • The scheme was up and running quickly, with nearly 13,000 homes purchased with the support of Help to Buy in its first nine months. • “Its aims are ones we all support: improving access to mortgage finance, increasing housing supply and contributing to economic growth. • However, the Department for Communities and Local Government does not understand the overall impact of its housing strategy and the combined effectiveness of its different initiatives.” • A comprehensive evaluation will be carried out in 2015, which will look at three areas. These are whether builders have constructed more houses than they would have, if more people bought properties than they would have without the scheme and what effect Help to Buy could have on property prices. • Lloyds Banking Group has announced the initial public offering pricing of TSB. • The offer price stands at 260 p per ordinary share, making TSB’s market capitalisation approximately £1.3 billion. The offer consists of 175 million existing TSB ordinary shares being sold by laws, making up 35% of the 500 million shares that will be in issue at admission. • “TSB has a national network of branches, a strong capital base, robust liquidity and significant economic protection against legacy issues. It is already operating on the UK high street and is proving to be a strong and effective challenger, further enhancing competition in the UK banking sector,” said Lloyds Banking Group chief executive Antonio Horta-Osorio. • .

9. Top News Stories • “But every firm also has a responsibility to treat their customers fairly and we would expect them to put good customer outcomes at the heart of everything they do. Leaving customers on higher-rate deals doesn’t fit with either of those criteria,” the newspaper added. • Bank of England Monetary Policy Committee member David Miles has said he would more than likely vote for a base rate rise. • Writing in the Daily Telegraph, he stated it is increasingly likely that he would vote for the rate hike before leaving the committee in May. • Mr Miles said in the newspaper: “Having Bank Rate at 0.5 per cent is obviously not a normal or sustainable setting for monetary policy. We have had such low rates because the economy took a huge hit in the aftermath of the financial crisis of 2008. Until fairly recently we have not had any sort of sustained recovery from that. Now we have one. • “Thankfully it is proceeding while inflation remains subdued. Following a long period when it was above the two per cent target, inflation has dropped back to under two per cent. • “So the process of normalising interest rates, when it starts, looks to me likely to be one taken because of the resilience of the recovery rather than because of a need to react to excessively high inflation.” • Ed Miliband has laid out new rules regarding unemployment benefits. • Should Labour come into power following next year’s General Election, a new youth allowance for those with no qualifications will replace Job Seekers’ Allowance. This new payment would be dependent on young people being in training and will target those who require the benefit the most. • The means testing will result in those with a household income of more than £42,000 a year not being entitled to the new allowance. • “Britain’s young people who don’t have the skills they need for work should be in training not on benefits,” Mr Miliband said. • Martin Wheatley has said it was “disappointing” how some banks have interpreted the Mortgage Market Review (MMR). • The Daily Mail has revealed that some banks have stopped customers from switching to cheaper deals by citing the strict MMR rules as a reason why. • However, the Financial Conduct Authority’s chief executive commented: “It shows some lenders are not approaching the rules in the spirit that they were intended. They have to decide what level of risk they are prepared to take. That’s reasonable.